PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Question
Chapter 9, Problem 1RQ
To determine
Determine the relation between wealth and saving.
Expert Solution & Answer
Explanation of Solution
The wealth measures the current value of a stock of assets owned by someone or society as a whole. That means, the wealth is a stock variable. For example, if a person says that ‘I have $10,000 in my bank account’, then it is the wealth of that person for that particular moment whereas saving is a flow variable, which is measured as per the unit of time. For example, if a person says that ‘I save $10 per week’, then it indicates one-week savings of that person. Here, the amount of wealth is increased at a growth rate of $20 per weeks.
Saving is not the only source that increases the wealth of a person. The value of wealth will also increase when the value of the assets held by an individual rise, this is called the
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Ross has a summer beach cottage that he has owned for many years. The cottage is valued at $75,000. This year, Ross spends $300 on paint and $575 on trees, and then paints the exterior of the cottage and plants the trees himself. If he had hired a professional painter, it would have cost $1,250 to paint the cottage (not
including the cost of paint), and if he had hired a professional landscaper, it would have cost $450 (not including the cost of the trees) to do the planting.
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Ross has a summer beach cottage that he has owned for many years. The cottage is valued at $75,000. This year, Ross spends $300 on paint and $575 on
trees, and then paints the exterior of the cottage and plants the trees himself. If he had hired a professional painter, it would have cost $1,250 to paint the cottage
(not including the cost of paint), and if he had hired a professional landscaper, it would have cost $450 (not including the cost of the trees) to do the planting.
How much does Ross's improvements to the cottage add to GDP this year?
The increase in GDP would be $ 875.
If Ross had hired the painter and the landscaper, how would Ross's improvements to the cottage have added to GDP this year?
The increase in GDP would be $
Q5) Consumption-Saving Choice
Based on Abel, Bernanke and Croushore, 10th edition, Chapter 4, Numerical Problems No. 1.
A consumer is making saving plans for this year and next. She knows her real income after
taxes will be $50,000 in both years. Any part of her income saved this year will earn a real
interest rate of 10% between this year and next year. Currently, the consumer has no wealth
(no money in the bank or other financial assets, and no debts). There is no uncertainty about
the future.
a) Formally derive the consumer's intertemporal budget constraint.
b) Using the given numerical values rewrite and graph the budget line.
c) Find the consumer's PVLR.
Chapter 9 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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